David Cameron was under fire last night from politicians on all sides – including the Mayor of London, Boris Johnson – for failing to block the £963,000 bonus to Stephen Hester, the head of the Royal Bank of Scotland.
Downing Street insisted the bank, which is 83 per cent owned by the state, had gone through the "proper process" in deciding its chief executive's end-of-year award. But Ed Miliband, the Labour leader, challenged Mr Cameron directly over his reluctance to intervene, accusing the Prime Minister of a "disgraceful failure of leadership".
The Opposition seized on this week's disclosure in The Independent that there was no contractual guarantee in Mr Hester's contract that he should receive an annual bonus paid in shares.
Mr Johnson said he was at a loss to justify the "absolutely bewildering" bonus of 3.6 million shares worth nearly £1m and said it should have been vetoed by the Government. He said: "The idea this is not in the control of the Government seems to me to be far-fetched."
Mr Johnson said Mr Hester, right, whose salary is £1.2m, was "an able man probably doing a difficult job". But the Mayor added: "It certainly seems to me to be right that the Government should step in and sort it out. People will not understand how somebody can get a whacking great bonus when they are basically running a state-owned concern."
There were also signs of Coalition strains as Jeremy Browne, a Liberal Democrat minister, appealed to Mr Hester not to accept the bonus. He said: "He needs to think like a public servant who has a duty to his country, not just his own wealth."
Mr Cameron's spokes-man said he had not been "directly involved" in deciding the size of the bonus. He declined to be drawn on the Prime Minister's opinion on it.
Speaking at the World Economic Forum in Davos, the Chancellor, George Osborne, argued that the Government could have stopped the bonus only by over-ruling the RBS board and taking over direct control of the bank. He said: "I understand people's frustration about levels of pay across the banking sector. But the alternatives would have been worse for the taxpayer."
But Mr Miliband said Mr Cameron had failed to live up to his promises on clamping down on executive excess. "It's a disgraceful failure of leadership by the Prime Minister," he said.
"He has been promising action against excessive bonuses, executive pay, and now he's nodded through a million-pound bonus. He's also been lecturing shareholders about how they need to be more active in holding executives to account. He owns, through the British Government, 83 per cent of the Royal Bank of Scotland."
The former financial services secretary, Lord Myners, challenged government claims its hands were tied over the bonus. Lord Myners said: "There is nothing in the employment contract of Stephen Hester which binds the company to pay a mandatory bonus."
Its last quarterly figures beat expectations but that hasn't staved off noticeably smaller bonuses. CEO James Gorman saw his stock value halved this year to $5.1m.
Bank of America
Reports this week suggest cash bonuses for most investment bankers will be limited to $150,000, with the rest in stocks and shares – an average cut of 25 per cent.
The bank refused to be drawn on reports its bankers would suffer a 30 per cent bonus cut.
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